Payroll Tax Stirs Revolt

Suburbs Riled Over Key to MTA Bailout

By

Andrew Grossman

Updated Aug. 18, 2010 12:01 a.m. ET

A suburban rebellion is brewing against the payroll tax that was the centerpiece of last summer's bailout of the MTA.

State senate candidates in the suburbs—especially on Long Island—have made the payroll tax dedicated to the Metropolitan Transportation Authority a focus of their campaigns. Meanwhile, suburban counties are filing lawsuits that argue the tax is unconstitutional. Revenue from the tax accounts for $1.3 billion of the agency's projected $12 billion 2011 budget.

"Out here on the East End of Long Island people rely a lot less on" the MTA, said Smithtown attorney
Lee Zeldin,
a Republican trying to unseat Sen.
Brian Foley.
"That's why there's so much resentment."

Mr. Foley, a Democrat, supported the bailout package that imposed the tax of 34 cents on every $100 of payroll in New York City and seven suburban counties. It kept the MTA from implementing drastic fare hikes and service cuts.

Mr. Foley represents a southern Suffolk County district that has two Long Island Rail Road lines running through it. The MTA proposed cutting weekday service on one of those lines, from Ronkonkama to Greenport, earlier this year. But it later decided against the move.

The payroll tax is emerging as a campaign issue largely in less-dense districts far from the city like Mr. Foley's, where fewer residents use the MTA to get around.

Suffolk County said Tuesday that it would file a brief supporting neighboring Nassau County's lawsuit challenging the tax. Other suburban counties and towns have joined Nassau or have filed their own suits.

Mr. Foley doesn't like the tax and is working to make it less burdensome to businesses, said
Jim LaCarrubba,
his campaign manager. But he said it was a necessary tradeoff to avoid deep MTA cuts last year.

"It was either that or let them raise fares 35 or 40%, cut service dramatically," Mr. LaCarrubba said. "To just say you don't like it and have no solution on how to fix the problems, it's not being genuine to the public."

Mr. Zeldin argues that the MTA should cut administrative costs and make riders pay more. Other opponents like
Mike Kaplowitz,
a Democrat running for a Senate seat in northern Westchester, Putnam and Dutchess counties, say they'd like to consider other options such as tolls on the free East River bridges to replace the tax.

The MTA has been slashing its overhead in recent months, resulting in an estimated $525 million in annual savings starting next year. It will hold public hearings on a 7.5% fare hike proposal—a level that was part of an agreement reached with Albany to secure the bailout—in September.

"How the MTA should be funded is a question for the Legislature," MTA spokesman Kevin Ortiz said. "But the payroll tax is an important revenue source for the MTA, and its existence prevented service cuts and proposed fare increases from being even worse."

While opposition is strong in the Senate—and will get stronger if Republicans regain control of it in November—a repeal would be a harder sell in the Democrat-controlled Assembly.

Legal challenges may also have a hard time.

After the MTA board heard a proposal last month to cut the agency's $26 million in funding for Long Island Bus service, Nassau County Executive
Ed Mangano
filed a lawsuit challenging the tax's legality and constitutionality. The suit argues that the tax violates the state constitution's home-rule provisions and wasn't passed with the two-thirds majority required for laws that only apply to certain municipalities.

Those arguments aren't likely to win in court, said
Gerald Benjamin,
the dean of liberal arts and sciences at the State University at New Paltz and an expert on state government.

"The courts tend to favor the state when these differences arise, pretty substantially," he said. "I think there's very little hope for this litigation."

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